The practical implication for the debate over climate change is that the EU’s EST is not nearly as successful as European proponents claim.

But VAT fraud is not the only problem undermining the credibility of the EU’s vaunted cap-and-trade system. Some leading European companies are gaming the ETS by lobbying for the right to pollute for free. Indeed, a number of corporations are effectively extorting EU bureaucrats in Brussels into giving them hundreds of millions of euros in free carbon credits to keep those companies from moving European jobs to developing countries.

For example, European steelmakers have threatened to leave the EU for India, eliminating the jobs of up to 90,000 European workers in the process, unless the EU grants the steelmakers free carbon credits worth hundreds of millions of euros. As a result, ArcelorMittal, the world’s largest steel company, has gained windfall profits in the form of carbon credits worth nearly €1 billion, for which it paid nothing. By 2012, ArcelorMittal will have accumulated surplus permits for 80 million tons of carbon dioxide, which is equivalent to the pollution generated annually by all of Denmark.

ArcelorMittal is now free to sell its surplus carbon credits on the market or to hoard them for future use. If it hangs on to them, the company will be able to avoid cutting greenhouse gas emissions possibly for decades, effectively undermining the ETS. According to Sandbag, a British NGO that campaigns to improve carbon trading, the EU’s ETS has been turned into “a system for generating free subsidies.”

The EU’s ETS was set up by European bureaucrats in 2005 in order to enable the EU to meet its targets for cutting greenhouse gases under the Kyoto Protocol. It is now by far the largest multi-national cap-and-trade scheme in the world, comprising nearly 75 percent of the value of the global carbon market. The idea behind the ETS is that it reduces carbon dioxide emissions and creates incentives for climate-friendly innovations and so moves European industry onto a low carbon path. Yet, despite the claims, the ETS has failed to achieve its objectives.

Indeed, critics say the only thing the ETS has actually accomplished has been to provide the EU’s biggest polluters with windfall profits, and to increase utility bills for ordinary European citizens. Some analysts believe the ETS is now responsible for between 15 to 20 percent of European power prices, which spiked dramatically in all EU countries after the ETS began operating.

Of course, the ETS has also greatly enhanced the power of unelected bureaucrats in Brussels, who seem bound and determined to redistribute global wealth. In the words of Christopher Booker of the Telegraph: “Forget Big Oil: the new world power is Big Carbon. Truly it has been a miracle of our time that they have managed to transform carbon dioxide, a gas upon which all life on earth depends, into a ‘pollutant,’ worth more than diamonds, let alone oil. And many of those now gathered in Copenhagen are making a great deal of money out of it.”